Kolkata-based Bandhan Bank has launched its Rs 4,473-crore IPO today. Being the first public offer for a private sector lender this year, the IPO comprises 11.9 crore equity shares, according to the draft red herring prospectus filed with Sebi. The bank proposes to offer up to 119,280,494 equity shares of face value of Rs 10 each at a price to be determined through a book building process including premium. We look at key financial statistics of Bandhan Bank you need to know before investing your money in the IPO.
A majority of Bandhan Bank's funding is from deposits. As of December 31, 2017, the bank had a CASA ratio of 33.22%. CASA ratio is the ratio of deposits in current and saving accounts to total deposits. A higher CASA ratio indicates a lower cost of funds for banks. It also means that a higher portion of the deposits of the bank has come from current and savings deposit, which is generally a cheaper source of fund. Most banks do not pay interest on the current account deposits and money lying in savings accounts attracts a limited interest rate. A higher CASA ratio translates into net interest margin, which means better operating efficiency of the bank.
Provisioning for NPAs
The bank's gross NPA ratio stood at 1.67% on December 31, 2017. On December 31 2016, the ratio stood at 0.48%. The ratio as on March 31, 2017 and March 31, 2016 stood at 0.51% and 0.15%, respectively.
As of December 31, 2017, the bank had 887 branches, 430 ATMs, 2,633 DSCs (Doorstep Service Centers), and more than 11.00 million customers. The number of employees stood at 27,176. The microfinance lender has a network of 2,022 doorstep service centres (DSCs) and 6.77 million micro loan customers that were transferred from BFSL, which have increased to 2,633 DSCs and 9.86 million micro loan customers as of December 31, 2017.
Capital Adequacy Ratio
As at December 31, 2017, capital adequacy ratio (CAR) was at 24.85%. The RBI requires a minimum capital adequacy ratio of 13% of the bank's total risk-weighted assets. CAR is used to determine the adequacy of banks' capital keeping in view their risk exposures. The ratio can be calculated by dividing the capital of a bank by its assets. In case of heavy losses, the bank's capital takes the first hit before the funds of lenders are affected.
As of December 31, 2017, the bank's deposits and Gross Advances (including IBPC/Assignment) stood at Rs 252,93.95 crore and Rs 243,64.38 crore, respectively. For the nine months ended December 31, 2017 and 2016*, the bank logged net interest margins (NIMs) of 9.86% and 10.34%, return on equity (RoE) of 25.55% and 27.88% and return on assets (RoA) of 4.07% and 4.39%, respectively (each on an annualised basis).
For FY 2017 and FY 2016, the bank posted a total income of Rs 4.32 crore and Rs 1,731.25 crore and profit after tax as restated of Rs 1,111.95 crore and Rs 2,75.24 crore, respectively.
NIM is the difference between the interest income generated by banks or other financial institutions and the amount of interest paid out to their lenders (for example, deposits), relative to the amount of their (interest-earning) assets.
Net Interest Income in FY 2016 amounted to Rs 9,32.836 crore, while Net Interest Income in FY 2017 amounted to Rs 24,03.49 crore. Net interest income is the difference between the revenue that is generated from a bank's assets and the expenses associated with paying out its liabilities.
Return on average assets, equity
Bandhan Bank logged the highest return on average assets among its peers in fiscal year 2017. In terms of return on equity, the bank was second highest amongst its peers and better than other private sector scheduled commercial banks.
Return on average assets
Bandhan Bank: 4.5%
YES Bank: 1.8%
IndusInd Bank: 1.8%
HDFC Bank: 1.9%
Bharat Financial Inclusion limited: 3.4%
Return on equity
Gruh Finance Limited: 30.4%
Bandhan Bank: 28.5%
Bajaj Finance: 21.6%
AU Small Finance Bank: 20.4%
YES Bank: 18.6%
Risk of Fraud
As the bank handles a large amount of cash through high volumes of small transactions taking place in the network, it is exposed to the risk of fraud or other misconduct by employees or outsiders. For instance, during FY 2017, the bank discovered 283 cases of theft, robbery and cash embezzlement by either third parties or employees in an aggregate amount of Rs 65.5 lakh or 0.06% of its profit after tax for FY 2017.
Further, for the period ended December 31, 2017, the bank discovered 209 cases of theft, robbery and cash embezzlement by either third parties or employees in an aggregate amount of Rs 1.464 crore or 0.15% of its profit after tax for December 31, 2017.
*Since the bank began operations on August 23, 2015, figures for FY 2016 include its micro banking and general banking operations only for the period from August 23, 2015 to March 31, 2016, and accordingly, its FY 2016 financial statements are not comparable with its FY 2017 financial statements.